Entrepreneurship development and Industrial Consultancy

Module 5. Business policy

Lesson 20
CONTRACT FARMING AND PUBLIC PRIVATE PARTNERSHIP

20.1 Contract Farming

It is defined as agreement between farmers and processing or marketing firms for the production and supply of agricultural products under forward agreements at predetermined prices. The two parties under agreement are not equal. Farmer is economically weak and the other contracting party is economically strong. The important feature of contract farming is that the buyer/contractor provides all the material inputs and technical advice regarding crop production to the farmer. It is a system for the production and supply of land based and allied produce by primary producer (farmer) under advance contract. The essence of such contract is commitment to supply agricultural products of specific type at specific time, price and quality to the contracting party.

20.1.1 Types of contracts

It could be of following 3 types:

i) Procurement Contract: In this type only sale and purchase conditioned are mentioned.

ii) Partial contract: In this only some of the inputs are supplied by the contracting party and the farm output is purchased at predetermined price.

iii) Total Contract: In this the contracting party supplies and manages all the inputs on the farm and farmer becomes just a supplier of land and labour.

Advantages for farmers

i) Provision of inputs and production services

ii) Access to credit

iii) Introduction of appropriate technology

iv) Skill Transfer

v) Guaranteed and fixed pricing structure

vi) Access to reliable markets

Problems faced by farmers

i) Increased risk

ii) unsuitable technology and crop incompatibility

iii) Manipulation of quotas and quality specification

iv) Corruption

v) Domination by monopolies

vi) Indebtedness and over reliance on advances

20.1.2 Advantage to contracting party

i) Political Acceptability

ii) Overcoming Land constraints

iii) Production reliability and shared risk

iv) Quality consistency

v) Promotion of farm input

20.1.3 Problem faced by contracting party

i) Land availability constraint

ii) Social and cultural constraints

iii) Farmer discontent

iv) Extra contractual marketing

v) Input diversion

Public Private Partnership (PPP)

This is a form of organization, funded and operated through a partnership of government and one or more private sector organizations. It is a contract between public sector organization and private organization where in the private party provides public services and bears financial, technical and operational risk. Based upon nature of contract a public private partnership may assume any of the following forms:

a) The cost of using the services is totally charged to users and not to the taxpayers.

b) Capital investment is made by the private sector based upon contract with government to provide agreed services and the cost of providing the services is the responsibility of the government.

In PPP mode, generally a private sector organization forms a special separate organizational set up to develop, build, maintain and operate the asset for the contracted period. In the infrastructure sector, complex arrangement and contracts that guarantee and secure the cash flows make the public private partnership mode a suitable arrangement for project completion.

In India at present number of highway projects are built under the mode of PPP.